The Economics of College

With the renewed debates about “is college worth it” going on I found it interesting to look at the history of College. 150 years ago, college was where some went to prepare for the ministry or a profession (law, or medical – accounting was not yet recognized as a profession), but mostly it was where you went to become part of the “ruling elite.” A vast majority of people did not go to college and college was even seen as a way to “counteract the overweening mercantilism of the time.” For those of you not used to 150 year old language that means college was seen as a counter-weight to the excess of the business world.

Oh how things have changed. While college is still worthwhile on a strict Net Present Value (NPV) basis of the additional earnings versus the cost, that is based on averages. Someone that pays $50,000 a year to attend a private school to get a degree in social work that will earn them $30,000 a year doesn’t have the same NPV calculation as someone who attends a state or community school to get an accounting degree and begins earning in excess of $40,000 right out of school with raises usually in fairly quick succession after that.

The ultimate irony is that the business school is now seen as the NPV leader in colleges across the country and accounting is the cornerstone of that leadership. And it is important that it stay that way. While exceptions can always be sited, economics, like demographics roll forward like the tide coming in on a beach. If we want to continue to attract our share of the best and the brightest to our profession then we need to make sure the economics of attending college pay off as well or better for accountants than other majors.

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Picking an Accounting Program

My nephew, who is a Junior in High School and currently intends to major in Acconting, called me the other day to talk about what college he should go to.   He asked questions about how determine how a college is viewed by employers and does going to a certain college make a difference in your career.  He also asked about getting a bachelors degree with 150 hours or getting a bachelors and masters degree in obtaining the 150 hours required to sit for the CPA exam.

The first question was tough because there are so many good accounting programs out there.  I could tell him to look at the ratings that come out every year, but his question was really more than that.  He asked about the impact on your career.  I told him that after about five years, the college listed on your resume mattered less than your actual work experience in advancing your career, but that is the “long-term view” and as the saying goes in the long-term we’re all dead any way. 

The advice I finally decided on was to tell him to ask what accounting firms and businesses regularly recruited from the College or University and do they come on Campus or not to recruit.  For example, if his desire is to go to work for one of the big four accounting firms then he should pick a college that the big four regularly recruit from.  If his desire is to go straight into industry then he might need to be looking at a different set of institutions.  Of course, most High School Seniors don’t have a clue what they want to do in the profession after they finish school, so I suggested he look for a College or University that was recruited by a variety of businesses and firms.

Of course, that is based on all other things being equal and that he feels comfortable at the college he chooses.   Colleges and Universities have different cultures and personalities and no matter how high it is ranked, if that culture is not a good fit, he shouldn’t go there.  That’s why I pointed out that after a few years, the school on the resume’ starts to lose its importance when compared to the work experience.  And in our profession, where there are so many different career paths, it is easy to start your career in one place and end somewhere completely different if that is where your heart takes you.

His other question was about getting just a Bachelors degree or getting both a Bachelors as well as a Masters.  I told him that almost every state now requires 150 hours (5 years) to become a CPA.  While there are a significant number of people who go the route of getting the hours but only have the bachelors degree, I suggested that if you were going to go to the trouble of doing the 150 semester hours of work, wouldn’t it make sense to have something more to show for it than just the right to sit for the CPA exam. (Full disclosure – I stuck around and got a Master of Accountancy degree back in the ‘80’s when it wasn’t generally required to become a CPA in most states.) I know some people will have different opinions in this area, but I believe the extra degree, unlike which college I attended, continues to make an impression on those that read my resume’, and continues to open up additional opportunities for me as a result.

So what do you think?  Did I give my nephew good advice?  Or should I call him back and tell him something different.